The 4 Question Check List
There is some probing questions you can ask when faced with a company you suspect has a competitive advantage
Q1: What is the Value the business is providing?
Lets take for example we talk about KFC. The value is yummy chicken.
We then move on to the next question.
Q2: Can you get it else where?
The answer is yes to this question. We can buy yummy chicken from many other places. We move on the the next question. But if the answer to this question is no, we find that we have pick a monopoly with nu competition.
Q3: If yes, then why don’t you get it else where?
If we can get chicken from else were, why don’t we get it from these other places? If your answer is that you will get from these places, then you realize that the business do not have a competitive advantage. If you realize that you only go to KFC because you want the KFC chicken’s consistency, the unique taste and the entire meal. You know that KFC has a competitive advantage over other fast food or fried chicken restaurant.
Q4: Is the competitive advantage discovered in Q3 easily sustainable?
We want a business which have sustainable competitive advantage. If a business needs to spend huge amount of money to sustain the competitive advantage, it is not easily sustainable. Looking at KFC again, the unique taste is not something that is easily duplicable by its competitors, nor is it something that is expensive to maintain. There is little need for Research and Development on the KFC’s recipe.